We are very pleased to report another highly successful fiscal year with double-digit sales growth and a significant increase in net profit. In many ways, 2021 also was a year of transformation for Tecan. With the acquisition of Paramit Corporation, the largest transaction in the company’s history, we significantly widened Tecan’s capabilities by adding around USD 300 million annualized revenues, strong development and operational capabilities for existing and new end markets, new hubs in the USA and Asia, and more than 1,000 new associates. This business combination provides us with a strong and scalable platform for future growth. With these differentiating combined capabilities and our strong market position we are confident that we will continue to be able to outperform the average growth rate of our underlying end markets.
FINANCIAL RESULTS FULL-YEAR AND SECOND HALF OF 2021
Full-year order entry increased by 12.9% to CHF 965.4 million (2020: CHF 855.2 million), or by 13.0% in local currencies. Following a surge in orders for product lines supporting the global fight against the coronavirus pandemic in 2020, orders were only down 1.5% in Swiss francs and 1.4% in local currencies year-on-year on an organic basis, i.e. excluding Paramit's order entry in the last five months of the year. The effect of the high COVID-related orders in the prior-year period was particularly visible in the second half of 2021. Here, organic order entry was 18.4% below the prior-year figure in Swiss francs and 18.6% in local currencies. Including Paramit, however, order entry grew by 7.2% in Swiss francs and by 6.9% in local currencies in the second half of the year.
As order entry exceeded realized sales also on an organic basis, the order backlog excluding Paramit increased in the low single-digit percentage range to reach a record high as of December 31, 2021. Including orders from Paramit, order backlog even grew at a substantial double-digit rate.
Sales for fiscal year 2021 climbed by 29.5% to CHF 946.6 million (2020: CHF 730.9 million), corresponding to a growth of 29.6% in local currencies. On an organic basis, sales grew by 14.0% to CHF 833.3 million, or by 14.1% in local currencies. Organic sales growth was also driven by a rebound and some pent-up demand for products for non-COVID research and clinical applications. COVID-19-related product lines contributed mainly to sales in the first half of the year, with no meaningful contribution from COVID-related systems and instrument components in the second half of the year. Demand for pipette tips continued at elevated levels throughout the year based on a larger installed base of instruments with broad test menus, including usage for ongoing COVID-19 testing. With a first-time revenue contribution of CHF 113.3 million from Paramit (CHF 105.6 million, excluding a one-off restatement in revenue recognition), sales in the second half rose by 17.0% in local currencies and by 16.6% in Swiss francs. As expected, organic sales in the second half of the year declined by 9.9% in Swiss francs and 10.2% in local currencies against the strong base in the prior-year period.
Reported operating profit before depreciation and amortization (earnings before interest, taxes, depreciation and amortization; EBITDA) rose by 28.6% to CHF 204.6 million in the fiscal year 2021 (2020: CHF 159.1 million). Reported EBITDA includes all transaction and acquisition-related costs in connection with the Paramit acquisition (CHF 7.3 million). The reported EBITDA margin accordingly reached 21.6% of sales (2020: 21.8%). Adjusted EBITDA increased by 37% to CHF 214.5 million (2020: CHF 156.5 million) and excludes all transaction and acquisition-related costs and one-time pension plan effects. The adjusted EBITDA margin increased by 130 basis points to 22.7% of sales (2020: 21.4%). This increase was mainly driven by benefits of scale due to the significantly increased volumes and total operating costs that grew at a lower rate than sales, a favorable product mix of instruments as well as a higher contribution from consumables and spare parts.
Excluding Paramit, i.e. on a comparable basis with the updated outlook of August 18, 2021, the EBITDA margin increased to 23.1% (also excludes the Paramit revenue contribution). Tecan thus met its communicated outlook of expanding the EBITDA margin to “at least 23% of sales” on a like-for-like basis.
Reported net profit for the year 2021 rose by 17.3% to CHF 121.7 million (2020: CHF 103.7 million). This figure includes all transaction and acquisition-related costs in connection with the Paramit acquisition (CHF 7.3 million) as well as the accumulated amortization of acquired intangible assets (CHF 24.6 million). Reported net profit increased less than operating profit (earnings before interest and taxes; EBIT) as a lower financial result was recorded due to currency hedging losses that were partly related to the Paramit acquisition. Reported basic earnings per share increased by 14.5% to CHF 9.95 (2020: CHF 8.69). Adjusted earnings per share1 reached CHF 12.89 and excludes transaction and acquisition-related costs, one-time pension plan effects as well as the accumulated amortization of acquired intangible assets.
Including effects from the Paramit acquisition, cash flow from operating activities reached CHF 169.9 million (2020: CHF 208.3 million), corresponding to 17.9% of sales (2020: 28.5%).
Details on the course of business of the Life Sciences Business and Partnering Business segments can be found in the relevant sections on pages 38 and 40. Details regarding the regional development of sales are discussed in the Chief Financial Officer’s Report on page 108.
Operating highlights 2021
On June 23, Tecan announced that it had entered into a definitive agreement to acquire US-based Paramit Corporation and its affiliates for a total purchase consideration of USD 1.0 billion (CHF 920 million), the largest transaction in the company’s history. Paramit, headquartered in Morgan Hill (CA), US, is a leading OEM developer and manufacturer of medical devices and life sciences instruments. The acquisition further extends Tecan’s position in solutions for life sciences and in-vitro diagnostics (IVD). It also adds a new business vertical in the attractive and fast-growing market for medical devices. The acquisition brings significant engineering as well as cost-competitive manufacturing capabilities, both in North America and in the APAC region. The acquisition of Paramit was successfully completed on August 2, 2021.
The year 2021 saw market introductions of new lab automation solutions and reagents in key research and diagnostic applications. To further drive its application-focused strategy, Tecan for example continued to launch new variants of the leading Fluent Automation Workstation, including a dedicated platform for whole blood pipetting in clinical environments and a solution for nucleic acid purification (NAP) that completely avoids sample loss when working with rare and precious samples. Tecan also introduced new important reagent and digital offerings. New reagent kits for example enable end-to-end processing of human samples to allow complete viral RNA-Seq library preparation in a single day. New offerings in Tecan’s growing digital ecosystem include the development of a fully integrated, sample-to-result solution for PCR workflows and the FluentControl Scheduler, a new software that offers a number of features designed to simplify day-to-day laboratory automation for significantly increased throughput and workflow efficiency.
Tecan continued to invest substantially in research and development. By applying new digital tools such as advanced 3D simulation, Tecan was able to keep development projects on track, despite challenging global work conditions due to the pandemic. With several projects nearing market launch, Tecan anticipates important product introductions in both business segments.
At the beginning of 2021, Tecan became one of the first companies to meet the requirements of the European Union’s In Vitro Diagnostic Regulation (IVDR) 2017/746 (Annex IX, Chapter I and III), successfully completing certification of its IBL International DHEA Saliva ELISA diagnostic assay kit through BSI Notified Body 2797. The valuable insights gained from this process will now be applied to the registration of Tecan’s complete portfolio of specialty IVD products – as well as to help its OEM partners ensure they are “IVDR ready”. The new IVDR represents a major regulatory overhaul, requiring reclassification and certification of all EU-registered IVD assays and devices.
In the second half of 2021, Tecan’s newly acquired Paramit Corporation received an US Food and Drug Administration (FDA) pre-approval inspection for manufacturing activities for a Class 3 medical device. This was the first time Paramit had been audited by the FDA and the audit was successfully concluded with zero formal observations.
Tecan firmly believes that a trust-based, purpose-driven, diverse and inclusive workplace culture makes a crucial difference in helping the company become an even more successful business in the long term. In order to continue to improve in a targeted manner, for the first time in 2020 Tecan conducted the TrustIndex™ employee survey by the international research and consulting company Great Place to Work®. As a result of this survey and an additional in-depth Culture Audit™, Tecan was officially certified as a Great Place to Work in January 2021. Moreover, Tecan was ranked one of Switzerland’s Best Workplaces in the Large Company category (more than 250 employees) in May.
The second survey that Tecan conducted in 2021 saw both higher participation rates and an improved “Trust Index™” score compared to the first survey in 2020, despite challenging global work conditions due to the pandemic.
Focus areas for 2022
After the acquisition of Paramit Corporation a main focus will be on the integration of the new business. Even more though, we want to make Tecan the new home for our new colleagues’ development and growth. Like Tecan, Paramit’s culture is founded on the core values of trust, ambition and highest standards. The common values have already proven to be a strong basis for the ongoing integration of the teams. Paramit has facilities in Morgan Hill (CA) and in Penang, Malaysia and a recently acquired R&D facility named Emphysys in Boston (MA). Across these different sites, the company employs over 1,000 associates and we look very much forward to the first full year developing our joint new future with our new colleagues. The complementary skills of both companies in operations and development have already shown their appeal to new customers over the previous months. In addition, as one of the first steps of the Paramit/Tecan integration, Tecan’s OEM Cavro components business has started moving from its site in San Jose to the Paramit facility in Morgan Hill in order to expand production capacity to meet the high and growing demand for these products. Planning and executing this move as well as the production transfer of some of the products from San Jose to the Penang facility will be an area of focus in 2022. We are also making good progress to execute a joint commercial strategy that aims at attracting new customers particularly in the US to deliver topline synergies. Overall, we aim to utilize Paramit’s market position to strengthen our combined market presence in the US. We will also broaden Paramit’s business in Europe and the APAC region via the well-established Tecan commercial channels.
Tecan is a purpose-driven company and with our expanded scope after the Paramit acquisition, we have revised our purpose statement to describe our broader capabilities. This statement defines why we at Tecan come to work with passion and a strong commitment towards our customers:
At Tecan we are driven to improve people’s lives and health by empowering our customers to scale healthcare innovation globally.
We strongly believe that our people and teams make all the difference and we aim to continuously improve the working culture and development opportunities for our associates globally. In other words, being the “Employer of choice” is a fundamental topic for Tecan, as it is through the dedication, expertise and creativity of our global team that we are able to continuously evolve and become better at what we do day by day. With such a rapidly growing number of employees, our focus is therefore on attracting the best people, offering meaningful development opportunities to advance careers regardless of gender, ethnicity or sexual orientation and ensuring a positive, welcoming and empowering working environment.
These activities are also part of our broad focus on growing our business sustainably. It is a conviction for us that our products, services and business practices add value to society. During 2021, we enhanced management of our social and environmental projects to the next level and we will continue with even more bandwidth the execution of these sustainability efforts in 2022. The process of calculating our total global greenhouse gas emissions footprint will be concluded during the year and it will help us to pinpoint the greatest sources of our emissions and take additional steps to address these, as we continue our decarbonization journey. To further demonstrate that Tecan is committed to step up activities in this regard, we signed the commitment to the Science Based Targets initiative in early 2022, and will set a Net Zero emissions reduction target within the next 24 months. More details on our activities can be found in the Sustainability Report
Our operational priorities for 2022 will focus on staying resilient in continued times of uncertainty. We expect a continued increased level of demand mix uncertainty and the availability of freight space and of certain materials likely will remain challenging. The operations team has been doing a fantastic job in the last two years, and through the implementation of several operational mitigation measures, we are confident to be fully operational at our production sites and provide best in class support to our customers also in 2022.
Tecan will continue to invest substantially in research and development to position the business for sustained accelerated growth. Our focus remains on the defined core applications, genomics, protein analysis and cell and tissue analysis as well as selected medical procedures. As we see product usability, cost of ownership, quality and design for regulatory compliance as fundamental for our competitiveness, we will continue to increase our modular systems offerings for complete solutions also with enabling reagents, functional consumables and innovative software products. Digitalization overall is an ever growing element of our R&D activities, which in this field include intelligent automation controls, cutting edge user interfaces, smart components, cloud-based application support and service digitalization. With several projects nearing market launch in all business areas, we anticipate important product introductions, including the imminent launches of major new advanced genomics platforms with significant revenue potential in both business segments. Therefore, successfully launching our own new products and supporting our OEM partners with their upcoming market launches will be another key priority for 2022.
Current developments in the various end markets indicate a healthy market environment. Tecan expects a continued recovery of non-COVID areas and no meaningful contribution from additional COVID-related systems and instrument components as already seen in the second half of 2021. Consumables are expected to stay at elevated levels of demand based on a larger installed base of instruments with broad test menus, including usage for ongoing COVID-19 testing.
Tecan is confident of organically offsetting most of the COVID-related sales from 2021, with a range of outcomes possible. Together with the good underlying growth expected for Paramit, Tecan therefore forecasts sales growth in the mid-teens percentage range in local currencies for the full year 2022.
These projections are based on the assumptions that supply chains remain undisrupted and all production sites stay fully operational.
After two years of substantial EBITDA margin improvements, including exceptional tailwind, some extraordinary effects and volume leverage, many of those effects are expected to normalize again in 2022. For 2022, Tecan expects an adjusted EBITDA margin, excluding acquisition and integration-related costs, at around 20% of sales (includes Paramit at an EBITDA margin of around 18% of sales). The underlying EBITDA margin will thus still be well above the pre-pandemic level (2019: 19.3%).
Acquisition and integration-related costs are expected to be in the mid-teens of millions in Swiss francs in 2022, the accumulated amortization of all acquired intangible assets is expected to amount to CHF 20-25 million.
Beyond 2022, based on a strengthened market position and the combined business with Paramit, Tecan expects to continue to outpace the average growth rate of the underlying end markets with an average organic growth rate in the mid to high single-digit percentage range in local currencies, while continuously improving profitability.
The expectations regarding profitability are based on an average exchange rate forecast for full year 2022 of one euro equaling CHF 1.08 and one US dollar equaling CHF 0.92.
The outlook 2022 does not take account of potential acquisitions during the course of the year.
EXPRESSION OF THANKS
On behalf of the Board of Directors and the Management Board, we would like to cordially thank our exceptional teams at Tecan for bringing us to this exciting point in our company history, and welcome once more our new colleagues from Paramit. We are also very grateful for the continued trust our customers and shareholders have placed in us and the support they provided in this dynamic evolution of Tecan over the past years.
Männedorf, March 10, 2022
Dr. Lukas Braunschweiler
Chairman of the Board
Dr. Achim von Leoprechting
Chief Executive Officer
1 Adjusted earnings per share excludes transaction and acquisition-related costs (+7.3 million), one-time pension plan effects (+2.7 million) as well as the accumulated amortization of acquired intangible assets (+24.6 million) and was calculated with the reported Group tax rate of 11.8%.